Barely four months into his job, AuRico Gold Inc. chief executive officer Scott Perry has had one message to investors: It’s time to get boring.
Odd as that may sound, especially from a youthful CEO such as Mr. Perry, it echoes the new mantra of a gold industry that is recovering from a massive shareholder exodus that slashed values at companies large and small.
It is still more understandable given AuRico’s checkered past performances as Gammon Gold Inc. – it changed its name in June – and a stock market that is punishing gold producers who pursue growth for growth’s sake, and at the expense of shareholder value.
“The big thing I keep talking about with shareholders is we just want a portfolio that is deemed reliable, stable, consistent,” Mr. Perry said in an interview last week from offices in downtown Toronto. “So, if I was to speak crudely, it’s ‘let’s just get boring.’”
AuRico’s stock price has oscillated like a yo-yo over the past four years, from lows of $2.95 a share in November, 2008, to highs of nearly $14 a share in August, 2011. These days, its shares are trading in the $7 to $8 range (they closed Dec. 24 at $7.67 a share), stabilizing after the company embarked on a radical redesign over the past year or so, from changing its name to stripping itself of underperforming assets.
The company’s experience has been reflected across the sector, as major gold companies have also suffered the impact of investor fatigue in recent years, and this year started taking measures to woo capital back to the sector.
Barrick Gold Corp. and Kinross Gold Corp., two of Canada’s largest gold companies, went so far over the summer as to axe their chief executive officers, pledging at the same time to slash costs and shelve production plans for marginal assets.
AuRico has begun to reap the benefits of its own radical steps. Starting out the year with six mines, today the company has two. From forecasts just a year ago for production of 730,000 ounces of gold a year by 2013, the company is now looking at potential output of 240,000 ounces from one mine in northern Ontario and another in northern Mexico.
On Dec. 14, shareholders got the first big payback on the culling, when AuRico put a cheque in the bank for $750-million (U.S.), the proceeds from selling the Ocampo gold mine in Mexico that was consistently underperforming relative to expectations.
“It was handicapping our company’s valuation,” said Mr. Perry, who plays Australia-rules rugby in his spare time. “It was discounting our story and investors were getting fatigued,” he said of the sale to Mexico’s Minera Frisco.
Proceeds from the sale of Ocampo also saw it pay off all of its corporate debt and take care of an $86-million tax bill. It announced a $300-million share buy-back on Dec. 17 and said it would announce a new dividend policy in February or March.
Anita Soni, an analyst with Credit Suisse in Toronto, said the Ocampo divestiture was positive for AuRico.
“We remain ‘neutral’, but are more constructive with the sale of Ocampo which we believe was a key cause of operational under-performance for AuRico,” she said in a Dec. 19 report.
Mr. Perry says he’s in constant contact with major shareholders who are supportive of his strategy of maintaining the financial health of the company.
The company still has some $300-million in cash in the bank, but he has no plans to deploy it in new acquisitions. Instead, he will focus efforts on the Young-Davidson mine in northern Ontario – set to produce up to 155,000 ounces of gold in 2013 – and the El Chanate mine in Mexico’s northern state of Sonora, where output is seen at up to 85,000 ounces of gold next year.
Even after the facelift and nip and tuck of the past year, AuRico’s share price is still only about half where it was at its peak in 2011 as the company continues to pay the price of having over-promised and under-delivered in its previous incarnation.
“I’m humble enough to say we do not have full credibility yet, because we do have that checkered past,” said Mr. Perry, predicting more success as Young-Davidson proves out a track record.
“As you deliver, you get paid back.”